Previewing Tyco Spin-Off Ahead of Analyst Meetings

Stock Tickers: TYC, COV, COV-WI, TEL, TEL-WI, GE

Tyco International Ltd. (TYC-NYSE) hosts its analyst meetings on Tuesday, June 19, to showcase its new spin-off companies.  Late last week we saw trading begin in the two spin-offs.  The "Tyco Healthcare" is named Covidien Ltd. and is trading under a when-issued ticker "COV" or on most symbols as "COV-WI."  The "Tyco Electronics unit" is appropriately named Tyco Electonics and trades as "TEL" or "TEL-WI."   The remaining company for all of the security and fire company is remaining Tyco International and keeping the "TYC" ticker.

Covidien (COV) closed out at $46.50 on Friday and Tyco Electronics (TEL) closed out at $38.80 on Friday.

In our free email newsletter we sent out last week, we noted that the break-up value for all of the combined Tyco International units could could fetch up to $36.00 or $37.00, but the stock was looking like it was set in a bumper car range of $32.00 to $35.00.  It just seems as though there is a phantom premium in the stock based solely on the actual spin-offs as an event rather than as the spin-offs’ true values.

Last week we also noted that Goldman Sachs had reiterated a "Buy" rating on the stock with a much more positive outlook.  Goldman noted that Tyco could even have a premium to their $35.00 target, which they even noted as ‘conservative.’    Our $36.00 to $37.00 note was sent on June 12 when the market was trading off, so the better stock market will be a boost for it.  Here was what we noted: If the market was not in a back-and-forth mode and if this wasn’t taking place into the 4th of July it might be a tad different.  But, only a tad.

A group of dissident bondholders late last week also noted that they are trying to get Tyco’s deal delayed, but the company said they remain on track after two delays already.  The company is also taking a $370 million after-tax charge this quarter related to sale of a power systems unit out of the electronics unit

We’ll send out more individual previews before and after the analyst meetings when we get to see the full presentations and hear what other plans are coming for each unit. 

Tyco trades too in-line with General Electric (GE) for the relative value to be incredibly higher than the market value of today, and shares have come up more than 36% from the lows over the last year before the spin-off was set in stone.

Jon C. Ogg
June 17, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.